Oil Continues to Fall, and OPEC Isn’t Helping

February 23, 2015

It was another down day in the oil market: Crude prices fell more than 2 percent, with WTI finishing Feb. 23 below $50 a barrel for the first time in almost two weeks.For a moment, things looked like they might go the other way. OPEC President Diezani Alison-Madueke said in a Financial Times report that she would call an emergency meeting of OPEC if prices continue to fall. Oil prices were buoyed by the news—briefly—until they fell again.

In addition to being president of OPEC, Alison-Madueke serves as Nigeria’s oil minister, and cheap oil has helped sow crisis in her country. The Nigerian currency, the naira, is at all-time lows against the dollar, terrorist attacks by the Islamist group Boko Haram have worsened, and national elections were recently postponed more than a month. It makes a lot of sense that Nigeria would want to put a floor under oil prices by hinting at an OPEC resolution—even if such a resolution is unlikely.

Some reasons for doubt:

  1. Another OPEC delegate told Bloomberg News today that OPEC has no plans to hold an emergency meeting. OPEC is scheduled to meet in June, and all 12 members must agree to hold a special meeting in the interim.
  2. It’s unlikely that Saudi Arabia, OPEC’s biggest producer, would agree to such a meeting, not to mention actually cutting production. Saudi Oil Minister Ali Al-Naimi has said OPEC won’t change course even if prices go to $20 a barrel.
  3. Even if a meeting were called, it’s not clear whether OPEC is capable of mustering support to cut sufficient production to boost prices. It would require imposing a shrinking market share for oil-dependent economies that are already stretched.
  4. Even if OPEC members were to cut production enough to increase oil prices, how would the legions of U.S. oil producers respond? Probably by putting all those idled rigs back into action, adding more supply to the market and undermining OPEC’s efforts.

In oil markets, perception is everything. It’s very possible that today’s talk of an emergency meeting was simply meant to reassure unstable markets. Sometimes the threat of taking action removes the need for taking action.

If that’s what happened, it comes at a risk for OPEC. The fact that markets brushed off the threat so quickly may imply that OPEC’s threat is losing credibility.

 

Canadian Oil Sands Output Growth Defies Prices : Increases Output -and more to come

Athabasca Oil Sands
Athabasca Oil Sands
A machine works at the Suncor Energy Inc. mine in this aerial photograph taken above the Athabasca Oil Sands near Fort McMurray, Alberta, Canada, on June 19, 2014. While production from forests of Northern Alberta started in the 1930s, output didn’t ramp up until the late 1960s and 1970s after companies including Suncor Energy Inc. and Syncrude Canada Ltd started operation.
U.S. Oil Production Increases The Most Since 1993

(Bloomberg) — The deluge of Canadian oil that’s adding to a global glut and driving prices lower is showing few signs of slowing.
Even with crude down 52 percent since June, output will grow 3.5 percent this year from the world’s fifth-biggest producer. The Canadian dollar is near a six-year low and materials cost less, helping oil sands producers cut costs and keep pumping. Oil would have to stay between $30 and $35 a barrel for at least six months, down from about $50 now, before wells and mines are shut, according to the Canadian Energy Research Institute.
Surging North American production has contributed to a global glut, pushing U.S. supply to the highest in three decades. OPEC opted in November to maintain output to hold on to market share. Oil sands supply is growing even as the number of rigs drilling for oil in the U.S. has fallen to the lowest in almost four years. RBC Dominion Securities estimates that oil companies have cut $86 billion from spending plans.
“We are above the price where existing projects” get shut down, Robert Johnston, chief executive officer of risk consultants Eurasia Group, said in Calgary Feb. 4. “Even projects that are under construction will continue.”
Western Canadian Select, the heavy crude that serves as the benchmark for oil sands, traded at $37.10 a barrel, according to data compiled by Bloomberg. It was $13.50 below West Texas Intermediate, the U.S. benchmark.
Lower Oil
Canada exported 2.93 million barrels a day in the third quarter, 97 percent to the U.S., National Energy Board data show. Canadian production will rise to 3.89 million barrels a day this year, according to the board. Conventional crude and condensate will drop 3 percent, while output of oil sands and upgraded synthetic crude will grow 8.3 percent.
Oil sands companies extract bitumen, a thick hydrocarbon, either by shoveling it from mines or injecting steam into the ground to melt it and then pumping it out. While production from forests of Northern Alberta started in the 1930s, output didn’t ramp up until the late 1960s and 1970s after companies including Suncor Energy Inc. and Syncrude Canada Ltd started operation.
Break-even costs have fallen 18 percent from a year ago and range between $25 a barrel for producers who use steam and $40 for the mining operations, according to Bank of Montreal estimates. This compares with $10 to $25 estimated by the Paris-based International Energy Agency for conventional Middle East and North African producers.
Smaller Producers
WTI fell 82 cents to $50.34 a barrel on the New York Mercantile Exchange. The U.S. benchmark will drop to $39, Jeff Currie, Goldman Sachs Group Inc.’s New York-based head of commodities research, said Thursday in an interview on Bloomberg Television.
Some Canadian output from smaller producers who have to borrow money may be at risk, Juan Osuna, IHS Energy Inc.’s senior director for North American oil, said by e-mail Feb. 10. Oil sands explorer Laricina Energy Ltd. said last month it was in default.
The Alberta oil sands growth parallels the Gulf of Mexico, another region where producers have invested for the long term. Offshore rigs will rise 30 percent this year compared with 2014, according to data from Wood Mackenzie, an industry consultant.
Canadian Oil Sands Ltd., the main owner of the Syncrude Canada mining project, expects to spend C$40.19 ($32.16) a barrel this year producing synthetic crude from oil sands, down from a previous forecast of C$45.69. Production is forecast to rise 8.9 percent this year.
Global Players
Suncor, which cut oil sands operating costs 6.5 percent in the fourth quarter from a year earlier, is proceeding with its Fort Hills project, scheduled to begin production in 2017 and ramp up toward 180,000 barrels a day. This comes after Suncor said it will cut 1,000 jobs and lower its 2015 capital budget by about 13 percent.
Imperial Oil Ltd. said Feb. 2 it will examine costs and capital investments even as it plans to double output from its C$20 billion Kearl oil-sands project in Alberta and boost production from the Nabiye facility this year.
While starting an oil sands project now wouldn’t be economical, companies will push ahead with those under construction and projects already operating will continue, Jackie Forrest, vice president of Calgary-based ARC Financial Corp., said in a Jan. 29 e-mail.
New Capacity
While it can take years for a new oil sands operation to ramp up to full production, a total of 423,000 barrels a day of new capacity is under construction and scheduled to be in operation this year, up from 116,000 barrels added last year, according to data published in Alberta’s winter 2015 Oil Sands Industry Quarterly update.
Most of the oil sands companies are “global players” and “they can afford to operate at a loss within the oil sands area,” Dinara Millington, a vice president at CERI, said by phone yesterday.
Oil sands miners would have to spend billions of dollars on reclamation of tailing ponds if they shut, she said. “It’s not as simple as turning off a truck or shutting in a well.”

Next For Oil: Mergers, Layoffs and ‘Death Spirals’

CNBC

Next for oil: Mergers, layoffs and 'death spirals'
.

Getty Images

The oil industry may be getting pinched by falling prices , but the next year could be a busy and lucrative time for private equity firms and restructuring specialists working in energy.

With crude prices nearly 60 percent off their highs , experts foresee a wave of corporate restructuring and acquisitions playing out over the next 12 to 18 months. Oilfield services companies are set to absorb smaller firms, while exploration and production companies could face a “death spiral” as their access to debt dwindles.

In December, Deutsche Bank analysts projected that U.S. shale producers “could be entering a zone of deep distress” once oil dipped below the $60 to $55 range.

 

“If prices were to stay sustainably below these levels for a few months/quarters, chances of a broad sector restructuring increase materially,” they wrote.

U.S. crude first settled below $60 on Dec. 11 and fell below $55 the following week. U.S.-traded West Texas Intermediate was near $44 on Thursday, while internationally traded Brent crude was close to $49.

“You’re pretty much in the top half of the first inning in the oil and gas sector,” George Koutsonicolis, managing director at SOLIC Capital Advisors, told CNBC. “Definitely, I expect there to be a pretty significant round of restructuring.”

That restructuring will come not just in the form of layoffs and cost cutting, but in capital restructurings in possible bankruptcy court cases, he said.

 

The job cuts have already begun to roll in from big oilfield services companies.

Last week, Baker Hughes (BHI) announced it would lay off 7,000 employees, or about 12 percent of its workforce. The same day, Halliburton (HAL) told investors to expect more reductions on top of a previously announced 1,000 cuts. Earlier in the month, Schlumberger (SLB) said it would shed 9,000 jobs.

BP (London Stock Exchange: BP.-GB)announced in December it would spend $1 billion and shed thousands of positions as part of a restructuring.

SOLIC now has its eye on oilfields services companies with high debt and poor capital structures.

The large oilfield companies are likely to scoop up weaker middle-market players, Koutsonicolis said. They will be on the hunt for firms with overlapping regional operations and back-office functions, two factors that will immediately add to earnings.

The fate of those firms is tied in part to exploration and production companies, for whom they provide infrastructure, specialized equipment, transportation and other services. Cost-cutting and reductions in revenue-generating activities among E&P companies eventually bleed into the oilfields services sector, forcing them to take similar measures.

 

Capital investment in the energy industry has decreased by about 23 percent, according to SOLIC.

Exploration and production companies have largely funded growth by borrowing on the high-yield debt market. The energy sector accounts for 17.4 percent of the high-yield bond market, up from 12 percent in 2002, according to Citi Research.

Now, the value of E&P firms’ primary asset is depleting, so banks are willing to lend them less money, and liquidity is drying up.

 

“Given the situation we’re in, the access to that high-yield debt will be somewhat impeded for some players,” Koutsonicolis said. “It’s kind of a death spiral for some of these firms.”

Exploration and production companies will typically restructure as a last resort, said John-Paul Hanson, head of Houlihan Lokey’s exploration and production practice. Instead, he told CNBC, they will try to weather the low commodity price market through financing and mergers and acquisitions activity.

The companies undergoing restructuring and bankruptcy filings at this point in the cycle lacked liquidity or had balance sheet constraints prior to the decline in commodity prices, he said. Low commodity prices effectively pushed them into restructuring because other solutions-such as tapping senior secured debt or selling assets-were not possible.

Hanson expects an uptick in M&A activity, but said sales of assets such as oilfield rights are more likely than outright buyouts of companies. That is because the value of E&P companies is in the underlying assets, not their corporate entities.

“The difficulty with oil and gas is you’re tied to the underlying commodity. E&P businesses really are just asset businesses,” he said.

 

While some companies may embark on mergers to achieve economies of scale, firms are more likely to sell noncore assets and unproductive oilfield acreage to increase cash flow and alleviate the cost of keeping them on the books. Those assets may find a home with another company that considers them core to their operations.

In the end, however, some oil and gas companies may not have a choice but to restructure, as they find it increasingly difficult to maintain cash flow while the cost of crude remains low, but while land-leasing and corporate expenses persist.

“The longer that we stay in a protracted, depressed price environment, the more likely it is that restructurings will be pervasive,” Hanson said.

 

Now it is up to you to act on this information

Contact Information:

To learn more about asset protection,  offshore company formation and structure your business

interests overseas ( at no cost or obligation)

Email info@jackbassteam.com  OR

jackabass@gmail.com OR

Telephone  Jack direct at 604-858-3202 for a  one  half hour no fee consultation.

10:00 – 4:00 Monday to Friday ( same time zone as Los Angeles).

 

Ten countries are islands famed for having no corporate income tax:

Bahamas, Cayman Islands, British Virgin Islands, and Bermuda – we know more

low or no tax jurisdictions.

The most important thing that you MUST do is seek advice from a qualified

advisor – Jack A. Bass, B.A. LL.B. (someone who understands international

tax jurisdictions and tax law) . Your advisor must understand the benefits

of particular offshore jurisdictions. It is your responsibility to take

action.

In most jurisdictions you can set up your offshore company in as little as

a few weeks. We most often start the process with registering a company

name and sending in the right documentation and supporting documents for

the incorporation and a bank account(s) or merchant account for you and

your business.All of this can be conducted by internet on in rare cases we

will attend in person – for you.

Here are the tax rules we use to eliminate tax on royalty and IP income –

Yes-you Can DIY ( Do IT Yourself ) – by following the IRS Rule Book :

HOW DO APPLE AND STARBUCKS AVOID US TAXES ON ROYALTIES AND IP ?

from http://www.youroffshoremoney.com

(b) Exclusion of United States income

In the case of a controlled foreign corporation, subpart F income does not

include any item of income from sources within the United States which is

effectively connected with the conduct by such corporation of a trade or

business within the United States unless such item is exempt from taxation

(or is subject to a reduced rate of tax) pursuant to a treaty obligation of

the United States. For purposes of this subsection, any exemption (or

reduction) with respect to the tax imposed by section 884 shall not be

taken into account.

(c) Limitation

(1) In general

(A) Subpart F income limited to current earnings and profits

For purposes of subsection (a), the subpart F income of any controlled

foreign corporation for any taxable year shall not exceed the earnings and

profits of such corporation for such taxable year.

HOW DID ROMNEY ACCUMULATE $ 250 MILLION IN THE CAYMANS – what can you do

to repeat his success ? – again quoting from the U.S. Tax Code:

(3) Special rule for determining earnings and profits

For purposes of this subsection, earnings and profits of any controlled

foreign corporation shall be determined without regard to paragraphs (4),

(5), and (6) of section 312 (n). Under regulations, the preceding sentence

shall not apply to the extent it would increase earnings and profits by an

amount which was previously distributed by the controlled foreign

corporation.

Oil Extends Drop : Worsening Glut – With Oil Companies and Investors In Denial

Oil extended losses to trade below $45 a barrel amid speculation that U.S. crude stockpiles will increase, exacerbating a global supply glut that’s driven prices to the lowest in more than 5 1/2 years.

Futures fell as much as 2.6 percent in New York, declining for a third day. Crude inventories probably gained by 1.75 million barrels last week, a Bloomberg News survey shows before government data tomorrow. The United Arab Emirates, a member of the Organization of Petroleum Exporting Countries, will stand by its plan to expand output capacity even with “unstable oil prices,” according to Energy Minister Suhail Al Mazrouei.

Oil slumped almost 50 percent last year, the most since the 2008 financial crisis, as the U.S. pumped at the fastest rate in more than three decades and OPEC resisted calls to cut production. Goldman Sachs Group Inc. said crude needs to drop to $40 a barrel to “re-balance” the market, while Societe Generale SA also reduced its price forecasts.

“There’s adequate supply,” David Lennox, a resource analyst at Fat Prophets in Sydney, said by phone today. “It’s really going to take someone from the supply side to step up and cut, and the only organization capable of doing something substantial is OPEC. I can’t see the U.S. reducing output.”

West Texas Intermediate for February delivery decreased as much as $1.19 to $44.88 a barrel in electronic trading on the New York Mercantile Exchange and was at $44.94 at 2:26 p.m. Singapore time. The contract lost $2.29 to $46.07 yesterday, the lowest close since April 2009. The volume of all futures traded was about 51 percent above the 100-day average.

U.S. Supplies

Brent for February settlement slid as much as $1.31, or 2.8 percent, to $46.12 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $1.24 to WTI. The spread was $1.36 yesterday, the narrowest based on closing prices since July 2013.

U.S. crude stockpiles probably rose to 384.1 million barrels in the week ended Jan. 9, according to the median estimate in the Bloomberg survey of six analysts before the Energy Information Administration’s report. Supplies have climbed to almost 8 percent above the five-year average level for this time of year, data from the Energy Department’s statistical arm show.

Production accelerated to 9.14 million barrels a day through Dec. 12, the most in weekly EIA records that started in January 1983. The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, or fracking, which has unlocked supplies from shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota.

OPEC Output

The U.A.E. will continue plans to boost its production capacity to 3.5 million barrels a day in 2017, Al Mazrouei said in a presentation in Abu Dhabi yesterday. The country currently has a capacity of 3 million and pumped 2.7 million a day last month, according to data compiled by Bloomberg.

OPEC, whose 12 members supply about 40 percent of the world’s oil, agreed to maintain their collective output target at 30 million barrels a day at a Nov. 27 meeting in Vienna. Qatar estimates the global surplus at 2 million a day.

In China, the world’s biggest oil consumer after the U.S., crude imports surged to a new high in December, capping a record for last year. Overseas purchases rose 19.5 percent from the previous month to 30.4 million metric tons, according to preliminary data from the General Administration of Customs in Beijing today. For 2014, imports climbed 9.5 percent to 310 million tons, or about 6.2 million barrels a day.

Oil Companies and Investors In Denial : Portfolio Profits At Risk

My rant – the  curse of Cassandra :

Cassandra, daughter of the king and queen, in the temple of Apollo, exhausted from practising, is said to have fallen asleep – when Apollo wished to embrace her, she did not afford the opportunity of her body. On account of which thing :

when she prophesied true things, she was not believed.

I have written :

Managed Accounts Year End Review and Forecast

Oil Producers Betting on Price Drop : Goldman Calls $ 40

Photographer: Gabriela Maj/Bloomberg

The oil industry was listening as OPEC talked down crude prices to a more than five-year low.

Drillers, refiners and other merchantsincreased bets on lower prices to the most in three years in the week ended Jan. 6, government data show. Producers idled the most rigs since 1991, with some paying to break leases on drilling equipment.

Companies are hedging more and drilling less amid concern that the biggest slump in prices since 2008 will continue. Oil dropped for a seventh week after officials from Saudi Arabia, the United Arab Emirates andKuwait reiterated they won’t curb output to halt the decline.

Oil Prices

“Producers are desperately hedging their production in a drastically falling market,” Phil Flynn, a senior market analyst at the Price Futures Group in Chicago, said by phone Jan. 9. “They’re trying to lock in prices because they are convinced that the market will stay down for a while.”

WTI slid $6.19, or 11 percent, to $47.93 a barrel on the New York Mercantile Exchange on Jan. 6, settling below $50 for the first time since April 2009. Futures for February delivery declined $1.53 to $46.83 in electronic trading at 8:09 a.m. local time.

OPEC Production

The Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world’s oil, has stressed a dozen times in the past six weeks that it won’t curb output to halt the rout. The U.A.E. won’t cut production no matter how low prices fall, Yousef Al Otaiba, its ambassador to the U.S., said at a Bloomberg Government lunch in Washington on Jan. 8.

The group decided to maintain its collective quota at 30 million barrels a day at a Nov. 27 meeting in Vienna. Output averaged 30.24 million barrels a day in December, according to a Bloomberg survey.

U.S. crude production was 9.13 million barrels a day in the seven days ended Jan. 2 after reaching 9.14 million three weeks earlier, the highest in weekly Energy Information Administration data since 1983. Stockpiles were 382.4 million barrels as of Jan. 2, a seasonal high.

The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which have unlocked supplies from shale formations including the Eagle Ford and Permian in Texasand the Bakken in North Dakota. Global oil prices below $40 begin to make wells in such places unprofitable to operate, Wood Mackenzie, an Edinburgh-based consultant, said in a report Jan. 9.

Idling Rigs

Rigs seeking oil decreased by 61 to 1,421, Baker Hughes Inc. said Jan. 9, extending the five-week decline to 154. It was the largest drop since February 1991, which also followed a slide in prices before the start of the Persian Gulf War.

Helmerich & Payne Inc., the biggest rig operator in the U.S., and Pioneer Energy Services Corp. said last week that they had received early termination notices for rig contracts.

Producers and merchants boosted their net short position by 21 percent, or 17,577 futures and options, to 100,997 in the week ended Jan. 6, according to the Commodity Futures Trading Commission, the most since Jan. 10, 2012.

Hedge funds and other large speculators raised bullish bets by 7 to 199,395 contracts.

“You have this tension and lack of consensus among money managers of what to do with a price under $50,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone Jan. 9. “People tend to think of money managers as a black box where they all use same strategy and march in lockstep, but this highlights that it’s not really the case.”

Other Markets

Bullish bets on Brent crude rose to the highest level in more than five months, according to ICE Futures Europe exchange.

Net-long positions gained by 24,598 contracts, or 21 percent, to 140,169 lots in the week to Jan. 6, the data show. That’s the highest since July 15.

In other markets, bearish wagers on U.S. ultra-low sulfur diesel decreased 12 percent to 23,789 contracts as the fuel sank 7.6 percent to $1.7262 a gallon.

Net short wagers on U.S. natural gas fell 15 percent to 10,323 contracts. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Nymex natural gas dropped 5 percent to $2.938 per million British thermal units.

Bullish bets on gasoline declined 0.4 percent to 44,050. Futures slumped 6.8 percent to $1.3543 a gallon on Nymex in the reporting period.

Regular gasoline slid 1.3 cents to an average of $2.139 on Jan. 10, the lowest since May 5, 2009, according to Heathrow, Florida-based AAA, the country’s largest motoring group.

The global crude oversupply is 2 million barrels a day, or 6.7 percent of OPEC output, Qatar estimates. Only 1.6 percent of supply would be unprofitable with prices at $40 a barrel, according to Wood Mackenzie.

“If you’re a producer and your cost is below the price in the market, if you hedge it even at depressed prices you can still make money,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone Jan. 9. “Somebody’s locking in profits even at these low prices.”

Goldman Sees Need for $40 Oil as OPEC Cut Forecast Abandoned

Jan. 12 (Bloomberg) 

Goldman Sachs said U.S. oil prices need to trade near $40 a barrel in the first half of this year to curb shale investments as it gave up on OPEC cutting output to balance the market.

The bank reduced its forecasts for global benchmark crude prices, predicting inventories will increase over the first half of this year, according to an e-mailed report. Excess storage and tanker capacity suggests the market can run a surplus far longer than it has in the past, said Goldman analysts including Jeffrey Currie in New York.

The U.S. is pumping oil at the fastest pace in more than three decades, helped by a shale boom that’s unlocked supplies from formations including the Eagle Ford in Texas and the Bakken in North Dakota. Prices slumped almost 50 percent last year as the Organization of Petroleum Exporting Countries resisted output cuts even amid a global surplus that Qatar estimates at 2 million barrels a day.

Oil Prices

“To keep all capital sidelined and curtail investment in shale until the market has re-balanced, we believe prices need to stay lower for longer,” Goldman said in the report. “The search for a new equilibrium in oil markets continues.”

West Texas Intermediate, the U.S. marker crude, will trade at $41 a barrel and global benchmark Brent at $42 in three months, the bank said. It had previously forecast WTI at $70 and Brent at $80 for the first quarter.

Photographer: Eddie Seal/Bloomberg

A floor hand signals to the driller to pull the pipe from the mouse hole on Orion… Read More

Forecasts Cut

Goldman reduced its six and 12-month WTI predictions to $39 a barrel and $65, from $75 and $80, respectively, while its estimate for Brent for the period were cut to $43 and $70, from $85 and $90, according to the report.

“We forecast that the one-year-ahead WTI swap needs to remain below this $65 a barrel marginal cost, near $55 a barrel for the next year to sideline capital and keep investment low enough to create a physical re-balancing of the market,” the bank said.

Goldman estimates there’s sufficient capacity to store a surplus of 1 million barrels a day of crude for almost a year. It expects the spread between WTI and Brent to widen in the next quarter as discounted U.S. crude prices and “strong margins lead U.S. refineries to export the glut to the other side of the Atlantic.”

The Brent-WTI spread will average $5 a barrel in 2016, according to the bank. The gap was at $1.50 today.

 

Houston, We Have An Oil Investor Problem : Survival

Photographer: Dmitry Beliakov/Bloomberg

Hedge Funds Cut Oil Bets After Worst Drop Since 2008

 

 

 

(And it will get worse -

Oil Companies and Investors In Denial : Portfolio Profits At Risk - Jack A. Bass)

Oil’s dramatic fall in price will have serious effects on revenues and spending in the sector, according to some industry analysts, with one investment firm predicting a sector-wide “recession” that will last for several years.

Both U.S. crude and Brent futures fell to fresh 5½-year lows on Tuesday, with the former slipping below $48 at one stage. Weak global demand and booming U.S. oil production are seen as the key reasonsbehind the price plunge, as well as OPEC’s (Organization of the Petroleum Exporting Countries) reluctance to cut its output.

This sector slump will lead to a fight to the death for oil firms, according to analysts at Bernstein Research. The research firm likened the current environment to the Hollywood movie “The Hunger Games”, which portrays a dystopian post-apocalyptic future where the main protagonists battle each other to survive.

“Our research convinces us an oil services recession is largely unavoidable at even $80 a barrel…The Hunger Games have begun,” Nicholas Green, a senior analyst at the company, said in a note on Tuesday morning.

Bernstein’s Green believes that offshore activity will also face a “structural recession.” He predicts that there will be only half of the new work available in 2015, compared to last year, and forecasts no material recovery before 2017.Hedge funds reduced bets on rising oil prices for a second week as futures extended their worst plunge since 2008.

Speculators pared their net-long positionin West Texas Intermediate crude by 3.6 percent in the week ended Dec. 30, U.S. Commodity Futures Trading Commission data show. Short wagers jumped 12 percent, the first gain in six weeks.

The U.S. benchmark price sank 46 percent last year as domestic oil output reached a three-decade high and OPEC produced more than its target for a seventh month. The International Energy Agency has cut its estimate for global demand as economies outside the U.S. are expected to grow more slowly, adding to a supply glut.

Oil Prices

“You had the combination of weak fundamentals and a shift in market psychology,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said yesterday. “People realized that there’s no imminent market tightness, and this caused big selloffs.”

WTI fell $3, or 5.3 percent, to $54.12 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. Futures declined $1.16, or 2.3 percent, to $48.88 a barrel at 8:46 a.m. after sliding to $48.47, the lowest since April 2009.

U.S. crude production was 9.12 million barrels a day in the seven days ended Dec. 26 after reaching 9.14 million two weeks earlier, the highest in weekly government data since 1983.

Global Production

Crude stockpiles in the U.S. were 385.5 million barrels as of Dec. 26, while gasoline suppliesincreased to 229 million, the highest seasonal levels in weekly Energy Information Administration data.

Russian oil production rose 0.3 percent in December to a post-Soviet record of 10.667 million barrels a day, according to preliminary data e-mailed by CDU-TEK, part of the Energy Ministry. Iraq exported 2.94 million barrels a day in December, the most since the 1980s, Oil Ministry spokesman Asim Jihad said.

“The consistent production around the world is overwhelming demand,” Michael Hiley, head of energy OTC at LPS Partners Inc. in New York, said yesterday. “It looks like prices will keep making new lows.”

The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which have unlocked supplies from shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota.

Saudi Prices

“Everybody is producing as much oil as they can,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “With the shale revolution flooding the market with oil and OPEC not cutting at all, the market is fundamentally weak.”

The Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world’s oil, produced 30.24 million barrels a day in December, according to a Bloomberg survey. The group decided to maintain its output quota at 30 million barrels a day at a Nov. 27 meeting in Vienna.

Saudi Arabia, the world’s biggest oil exporter, raised its price yesterday for February deliveries of Arab Light to Asia from the biggest discount in at least 14 years. The price cut last month was followed by Iraq, Kuwait and Iran, prompting speculation that Middle East producers were protecting market share.

“The Saudis refuse to cut and lose market share, to prop up prices for the rest of the world,” Hiley said. “As the price goes down, it doesn’t mean production goes away.”

Natural Gas

Net-long positions for WTI dropped by 7,551 to 199,388 contracts of futures and options in the week ended Dec. 30, according to the CFTC. Long positions fell 0.4 percent to 259,613 and short bets climbed to 60,225.

In other markets, bearish wagers on U.S. ultra low sulfur diesel increased 11 percent to 27,087 contracts as the fuel sank 6.1 percent to $1.8688 a gallon.

Wagers on U.S. natural gas swung to net short position of 12,130 contracts in the week ended Dec. 30 from net long of 3,648 in the previous week. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Nymex natural gas dropped 2.4 percent to $3.094 per million British thermal units.

Bullish bets on gasoline tumbled 10 percent to 44,226. Futures slumped 7.4 percent to $1.4537 a gallon on Nymex in the reporting period.

Regular retail gasoline dropped 0.5 cent to an average of $2.194 yesterday, the cheapest since May 2009, according to Heathrow, Florida-based AAA, the country’s largest motoring group. U.S. drivers may save as much as $75 billion at gasoline pumps in 2015, AAA said on Dec. 31.

“People realized how bearish the fundamentals are,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “It’s probably the worst of times for hedge funds. For drivers, it’s probably the best of times.”

 

The impending writedowns represent the latest blow to an industry rocked by a combination of faltering demand growth and booming supplies from North American shale fields. The downturn threatens to wipe out more than $1.6 trillion in earnings for producing companies and nations this year. Oil explorers already are canceling drilling plans and laying off crews to conserve cash needed to cover dividend checks to investors and pay back debts.

The mid-cap and small-cap operators are going to be hardest hit because this is all driven by their cost to produce,” said Gianna Bern, founder of Brookshire Advisory and Research Inc., who also teaches international finance at the University of Notre Dame.

An index of 43 U.S. oil and gas companies lost about one-fourth of its value since crude began its descent from last year’s intraday high of $107.73 a barrel on June 20.

Have you avoided these sectors  ?– you would have been better off  and now you have to decide for 2015.

No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Jack A. Bass Managed Accounts

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds at the rate of 1 % monthly if you require an income stream.

Contact information:

To learn more about portfolio management , tax reduction,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Telephone  Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

Tax website  Http://www.youroffshoremoney.com

 

OIL Declines – (as we forecast) – Expect ” more of the same “

Oil Falls to 5 1/2-Year Low as Russia, Iraq Boost Output

Oil dropped to the lowest since May 2009 amid growing supply from Russia and Iraq and signs of manufacturing weakness in Europe and China.

Futures headed for a sixth weekly loss in New York and London. Oil output in Russia and Iraq surged to the highest level in decades in December, according to data from both countries’ governments. Euro-area factory output expanded less than initially estimated in December. A manufacturing gauge in China, the world’s second-largest oil consumer, fell to the weakest level in 18 months, government data showed yesterday.

Prices slumped 46 percent in New York in 2014, the steepest drop in six years and second-worst since trading began in 1983, as U.S. producers and the Organization of Petroleum Exporting Countries ceded no ground in their battle for market share. OPEC pumped above its quota for a seventh month in December even as U.S. output expanded to the highest in more than three decades, according to data compiled by Bloomberg.

Oil Prices

“We’re seeing more of the same,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “The Chinese and European PMI figures signal weaker demand, while there’s ever-increasing supply. Nobody is cutting back on output and now the Russians are posting post-Soviet production highs.”

Brent for February settlement fell 53 cents, or 0.9 percent, to $56.80 a barrel on the London-based ICE Futures Europe exchange at 11:31 a.m. It declined to $55.48, the lowest since May 7, 2009. Volume for all futures traded was 30 percent below the 100-day average. The European benchmark slumped 48 percent last year, the second-biggest annual loss on record behind a 51 percent tumble in the 2008 financial crisis. Brent traded at of $3.24 premium to WTI.

West Texas Intermediate for February delivery rose 32 cents, or 0.6 percent, to $53.59 a barrel on the New York Mercantile Exchange after dropping to $52.03, the least since May 1, 2009. Volume for all futures traded was 34 percent below the 100-day average. Prices are down 3.2 percent this week.

The surge in oil supplies in Iraq and Russia signaled no respite in early 2015 from the glut that’s pushed crude prices lower. The two countries provided 15 percent of world oil supply in November, according to the International Energy Agency.

Russian oil output rose 0.3 percent in December to a post-Soviet record of 10.667 million barrels a day, according to preliminary data e-mailed today by CDU-TEK, part of the Energy Ministry. Iraq exported 2.94 million barrels a day in December, the most since the 1980s, Oil Ministry spokesmanAsim Jihad said.

The final two burning crude-storage tanks were extinguished at Es Sider, Libya’s biggest oil port, National Oil Corp. spokesman Mohammed Elharari said by phone from Tripoli. The fires started Dec. 25, when Islamist militants shot rockets at the port in a second attempt to capture it.

OPEC Production

OPEC’s production slid by 122,000 barrels a day from November to 30.24 million last month, led by losses in Saudi Arabia, Libya and the United Arab Emirates, a Bloomberg survey of companies, producers and analysts shows. The 12-member group has a collective target of 30 million a day.

U.S. oil production averaged 9.12 million barrels a day in the week ended Dec. 26, according to the Energy Information Administration. Output increased to 9.14 million a day through Dec. 12, the most in weekly data that started in January 1983.

Inventories of gasoline surged in the week ended Dec. 26 as production climbed to a record, EIA data showed.

Gasoline futures declined 3.14 cents, or 2.1 percent, to $1.4407 a gallon in New York. Diesel decreased 3.18 cents, or 1.7 percent, to $1.8018.

Regular gasoline at U.S. pumps fell to the lowest level since May 2010. The average retail price slipped 0.9 cent to $2.231 a gallon yesterday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.

Sector will respond to the lower commodity price but their share price will decline – example;

NEW YORK (MarketWatch) — Linn Energy LLC LINE, +15.20% said Friday it has approved a 2015 budget that cuts oil and natural gas capital spending to $730 million from about $1.55 billion in 2014, the latest company to respond to the recent slide in crude oil prices. “After careful consideration, LINN’s senior management proposed and the Board of Directors approved a 2015 budget that contemplates a significantly lower current crude oil price than in 2014,” Chief Executive Mark Ellis said in a statement. The budget assumes an unhedged NYMEX price of $60 a barrel. The company is cutting its annual dividend to $1.25 a share from $2.90, he said. Linn Energy has signed a non-binding letter of intent with GSO Capital Partners LP, the credit arm of The Blackstone Group LP BX, +0.56% to fund oil and gas development. GSO has agreed to commit up to $500 million to fund drilling programs. Shares were down 6.2% in premarket trade.

Three weeks after Chairman Steve Schwarzman said it’s going to be the best time in years to invest in energy, Blackstone Group LP (BX) is putting money to work.

Blackstone’s $70 billion credit arm, GSO Capital Partners, committed as much as $500 million to fund oil and natural gas development for Linn Energy LLC (LINE), according to a statement today. The Houston-based energy producer rose as much as 18 percent after the announcement, after losing almost 70 percent of its value in six months as crude prices plummeted.

Private equity firms, while taking steps to shore up energy companies in their portfolios, are hunting for investments in oil and gas producers after Brent tumbled more than 50 percent since June. Energy presents the best opportunity for Blackstone in many years, especially for the New York-based firm’s credit unit, Schwarzman said at a Dec. 11 conference.

“There are a lot of people who borrowed a lot of money based on higher price levels, and they’re going to need more capital,” he said at the conference in New York. “There are going to be restructurings to do. There’s going to be a fallout. It’s going to be one of the best opportunities we’ve had in many, many years.”

Photographer: Patrick T. Fallon/Bloomberg

Steve Schwarzman, co-founder, chairman and chief executive officer of Blackstone Group

Under the five-year agreement with Linn, Blackstone would fund drilling programs at locations selected by Linn for an 85 percent working interest in the wells, according to the statement. If the projects produce a 15 percent annualized return for Blackstone, its stake will drop to 5 percent.

Oil ‘Crisis’

The plunge in oil may usher in a new era for investing in distressed debt, according to Howard Marks, the billionaire co-founder of Oaktree Capital Group LLC. In a letter to clients last month, Marks said his Los Angeles-based firm is becoming more aggressive as companies that borrowed heavily in the low-interest rate environment now come under pressure.

“We knew great buying opportunities wouldn’t arrive until a negative ‘igniter’ caused the tide to go out, exposing the debt’s weaknesses,” Marks wrote. “The current oil crisis is an example of something with the potential to grow into that role.”

Linn, a master-limited partnership, is the latest producer to cut spending on expectations of lower oil and gas prices. The company said today it expects oil to average $60 a barrel in 2015, although it has hedged about 70 percent of its expected output at higher prices. Brent fell 1.9 percent to $56.23 a barrel at 2:38 p.m. in New York.

Active Developer

The agreement with Blackstone, which is non-binding, is “designed to allow Linn to be an active developer of assets with growth capital,” Mark Ellis, Linn’s chief executive officer, said in the statement. “This agreement creates a dynamic alliance.”

The company’s shares rose 13 percent to $11.44 at 2:47 p.m. in New York.

Please see our recent articles published this week on  2015 Energy Sector Forecasts ( archived) 

 

Energy Forecast 2015 : Oil Prices Won’t Be Bouncing Back

The surge in production comes as growth in global demand hit a five-year low in 2014, due to "a sharp slowdown in Chinese oil demand growth and steep contractions in Europe and Japan," the IEA said in its December report.

The surge in production comes as growth in global demand hit a five-year low in 2014, due to “a sharp slowdown in Chinese oil demand growth and steep contractions in Europe and Japan,” the IEA said in its December report.
  • ANALYSIS

The world’s major producers continue to pump oil at record levels, dimming hopes of a price rebound in the near future.


Jack A. Bass tax planning and investing guru says the prolonged stretch of low oil prices to come will bring on economic and geopolitical changes that not so long ago were unthinkable

U.S. crude has lost half its value since the summer, as eight of the world’s Top 10 producers cranked up production at or near record levels, with no one willing to rein in output.

On Tuesday, the global benchmark Brent settled up 2¢ at US$57.90. U.S. crude settled up 51¢ at US$54.12 a barrel. Both measures hit 5-1/2-year lows Monday before rebounding slightly.

International Energy Agency data shows U.S. oil production has risen by 4.7 million barrels per day during the past five years, while Canada’s production is up one million bpd and Saudi Arabia has climbed by 1.7 million bpd.

The surge in production comes as growth in global demand hit a five-year low in 2014, due to “a sharp slowdown in Chinese oil demand growth and steep contractions in Europe and Japan,” the IEA said in its December report.

The global oil market appears heavily oversupplied during the first-half of 2015

At the same time, Saudi, Canadian, American, Iraqi, Kuwaiti, Russian and UAE production were at or near their highest-ever levels.

“The global oil market appears heavily oversupplied during the first-half of 2015, with global stock builds becoming more manageable during the second-half of next year,” said RBC Capital Markets in a Dec. 18 report. “On an annual basis, we estimate the global oil market is approximately 1 million bpd oversupplied in 2015, but should tighten in 2016 as non-OPEC supply growth decelerate.”

There are few upside risks for oil at the moment. Markets barely registered news of a rocket attack last week on an oil terminal in Libya that saw up to 1.8 million bpd of oil wiped out from the market.

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Indeed, a deal between Iraq’s central government and the autonomous region of Kurdistan could see up to 300,000-bpd of oil entering the market by the first quarter. On Tuesday, the U.S. administration released more details on what kind of petroleum is allowed to be shipped under the 40-year ban on crude exports, that could further encourage production.

“I think we are in an era of low oil prices for some time to come,” said Phil Flynn, a Chicago-based analyst at The Price Futures Group Inc. “We ended the year in the U.S. with record inventories, we have OPEC basically on track to produce two million barrels per day more than the demand for their oil; and then we have other non-OPEC countries not showing any signs of cutting back in production — the glut is going to go on.”

Oil companies have started to take some action with rig counts at an eighth-month low in the U.S., but it will take a while for the process to filter through the supply chain.

In a sign of the lag, RBC expects non-OPEC supply growth to rise by 1.8 million bpd (compared to its previous estimate of 1.7 million bpd) in 2014, 1.1 million bpd (versus 1.3 million bpd) in 2015, and finally taper to 300,000  to 400,000  bpd in 2016 (compared to its previous estimate of 900,000 bpd).

While smaller, leveraged companies are expected to bear the brunt of the oil price plunge, the bigger, well-capitalized players will likely benefit from the purge of marginal barrels.

“The well-integrated oil companies are loving this,” Mr. Flynn says. “They are going to be able to ride it out and pounce on opportunities when others are going to be tight for cash.”

Few analysts expect an oil price recovery within the next few months, but some  believe markets are underestimating supply threats hovering over the horizon.

“We believe oil prices will rebound for three reasons,” said Leslie Palti-Guzman
, senior analyst, global energy and natural resources at Eurasia Group.

“Markets are underestimating the Libyan crisis, the U.S. Congress will impose more sanctions on Iran, curtailing its production, and Saudi Arabia and its Gulf allies will take some action.

 

You Have Options:

What To Do ?

Here is our recent letter:

Managed Accounts Year End Review and Forecast

November 2014 – 40 % cash position

Oil/ Energy I am very happy for the call in natural gas prices – out at $12 and into oil. When oil was above $100 we lessened positions and that is our saving grace in the past two weeks. We are not bottom feeders and will wait for a turn in the market before reentering drillers or producers.On Friday November 27th, crude oil prices dropped to below $72 and the slide has continued into the weekend, with Brent crude oil at $70.15 as I write this post. Shares of major oil companies traded down on Friday. Our former energy sector holdings are down another between 4% and 11%, including SDRL, which dropped another 8% following Wednesday’s 23% plunge…

Have you avoided these sectors – you would have been better off to follow our advice in 2014 and now you have to decide for 2015.
No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds monthly if you require an income stream.

Alternate Guaranteed Income Payments

Private client funds Minimum $10,000 Maximum Loan $500,000

Our client is seeking funds to expand their tanker fleet .

Interest 12 % compounded – paid 1% per month

Floating charge of the full $500,000 against the fleet – valued at  more than $ 1 M

 

Contact information:

To learn more about portfolio management ,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Call Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

Tax website  Http://www.youroffs

Civeco Plunge Typical of Downdraft Trend in Energy Stocks

Civeo Sinks 50% After Halting Dividends, Closing Camps

Civeo Corp. (CVEO), the Houston-based owner of so-called man camps for energy workers, dropped 50 percent after suspending its dividend and closing lodges in response to lower demand for its services.

Civeo cut staff in Canada by 30 percent and in the U.S. by 45 percent this year as oil prices fell by almost half since June, according to a statement late yesterday. Capital spending next year will drop by an estimated 78 percent to $85 million, and Civeo warned it may need to write down the value of some of its assets.

The company halted its 13-cent quarterly dividend. Cutbacks by oil-sands producers have reduced demand for its services in Canada and coal companies in Australia are suffering from “persistently low” prices, Civeo said. It has closed two lodges in Canada and is evaluating other locations.

“There are few major oil-sands construction and expansion projects forecast for 2015, reducing the demand for labor and accommodations,” Chief Executive Officer Bradley Dodson said on a conference call yesterday, adding that the Athabasca oil-sands region is oversupplied with rooms for workers.

Civeo dropped to $4.14 at 12:18 p.m. in New York after plunging as much as 52 percent, the most on record.

The company was spun off by Oil States International Inc. (OIS) and began trading publicly in June at $23.25, when West Texas Intermediate crude was above $100 a barrel. The U.S. oil benchmark has since fallen to less than $54 a barrel.

Spending Cuts

Large U.S. oil companies in shale formations have reduced spending by 25 to 50 percent, and major producers in Canada’s oil sands have forecast spending for 2015 that’s 15 to 20 percent lower than this year, Dodson said. Civeo has limited work commitments in the oil sands after the first three months of 2015, he said.

Projects in the oil sands, where the extraction of thick bitumen requires multibillion-dollar mining operations or drilling that includes vast amounts of steam, are among the most costly to develop. About one-quarter of oil-sands projects need crude prices of at least $80 a barrel to be profitable, according to the International Energy Agency.

Cenovus Energy Inc. (CVE), a Calgary-based oil-sands developer, said this month it will reduce spending next year by 15 percent, including a 64 percent reduction at its Narrows Lake project and a 46 percent cut to other emerging projects in the region.

Civeo said occupancy rate for rooms contracted in Canada has plunged to 35 to 40 percent in 2015 from more than 75 percent this year. In Australia, the rate has also dropped to 35 to 40 percent from more than 55 percent at the start of the year.

First-quarter sales will be $160 million to $175 million, down from $252.8 million a year earlier, Civeo said. Full-year sales next year will be $540 million to $600 million, missing the average estimate of $815 million compiled by Bloomberg from four analysts.

A private club in North Dakota’s Bakken shale that once charged membership fees as high as $25,000 and served jumbo shrimp cocktail was evicted this month in a sign that oil’s plunge is undercutting the region’s go-go years.

The Bakken Club was ordered on Dec. 17 to vacate its premises on Williston’s Main Street after failing to pay rent, state court records show. The club owed $21,598 for rent plus $1,329.90 in late fees, the landlord, On The Spot Development LLC, said in a Nov. 25 complaint. One check bounced.

The eviction, in the capital of the oilfield that set off the record surge in U.S. output, comes as a price war casts doubt on the boom’s future. The benchmark for U.S. crude oil fell as low as $52.70 a barrel today, the cheapest since May 2009, from more than $107 in June. Drillers such as Continental Resources Inc., the Bakken pioneer led by billionaire Harold Hamm, are idling rigs and cuttingspending.

 

Read More – our previous article :

Oil Falls : Sector Update Dec. 29 – and worse to come ( as we forecast)

Tax Planning for 2015  see http://www.youroffshoremoney.com

 

 

Can Canadian Oil Sands Survive Falling Prices?


A machine works at the Suncor Energy Inc. mine in this aerial photograph taken above the Athabasca Oil Sands near Fort McMurray, Alberta, Canada.

Photographer: Ben Nelms/Bloomberg

A machine works at the Suncor Energy Inc. mine in this aerial photograph taken above the Athabasca Oil Sands near Fort McMurray, Alberta, Canada.

As oil prices have crashed over the past six months, a lot of attention has focused on what this means for frackers in the U.S., as well as the national budgets of a lot of large oil producing countries, such as Russia and Venezuela. In short, it’s not good. But what about Canada? The country is the world’s fifth-largest oil producer, and only Saudia Arabia and Venezuela have more proven reserves of crude.

Almost all of Canada’s reserves (and production) are in the form of oil sands, which are among the most expensive types of crude to produce. There are pretty much two ways to do it. One is to inject steam into wells deep underground to heat up a thick, gooey type of oil called bitumen. The other is basically to strip mine large tracts of land and extract a synthetic blend of oil out of the earth and sand.

Taken together, both methods require about 17 percent more energy and water than conventional oil wells and also result in similarly higher levels of carbon emissions. That’s made oil sands a particular target of environmentalists. Now the Canadian oil sands producers have to contend with an even greater opposing force: economics. If Canadian oil sands are more expensive to produce than most other oil, how can they survive in the face of prices that are nearly 50 percent cheaper since June?

A few things play to their favor. The first is that their costs are more akin to a mining operation than conventional oil drilling. Oil sands projects require massive upfront investments, but once those are made, they can go on producing for years with relatively low costs. That’s made oil sands, and the companies that produce them, quite profitable over the past few years.

Suncor Energy (SU) and Cenovous Energy (CVE) are two of the biggest oil sands producers in Canada. Both have profit margins that would be the envy of a lot of major oil companies. At Suncor, earnings before interest, taxes, depreciation, and amortization (Ebitda), a basic measure of a company’s financial performance, has risen from 11.7 percent in 2009 to 31 percent through the first nine months of 2014.Exxon Mobil’s (XOM) Ebitda so far this year is about half that at 14.3 percent.

That cost structure may give oil sands producers an advantage over frackers in the U.S., who operate on a much shorter time horizon. Fracked wells in the U.S. tend to produce most of their oil within about 18 months or so. That means that to maintain production and rates of return, frackers need to keep reinvesting in projects with fairly short lifespans, whereas an oil sands project, once up and running, can continue to chug along, even in the face of lower prices, since its costs are spread out over a decade or more rather than over a couple years. That should keep overall oil sands production from falling and help insulate oil sands producers from lower prices, at least for now.

Canadian oil sands are expected to continue growing despite lower pricesGenscapeCanadian oil sands are expected to continue growing despite lower prices

“They’re safer than the frackers,” says Carl Evans, an oil analyst at Genscape. “The sentiment up in Calgary has very much been that growth will push through this price dip, while U.S. production will start to come off highs.” Evans says the breakeven costs for bitumen oil sands projects that are already up and running can be as low as $10 to $20 a barrel. Right now, the price of Canadian oil in Alberta is about $40 a barrel.

This isn’t to say that future investments won’t get cut if prices stay where they are. But those cuts won’t show up in future production growth for years. A total of 14 new oil sands projects in Canada are scheduled to start next year with a combined capacity of 266,000 barrels a day, according to data published by Oilsands Review. That’s 36 percent more than were started in 2014. Since most of those investments have already been made, those projects are probably safe. Even for projects that are only partially paid for, investors will still probably be loath to stop halfway.

“You don’t stop a project mid-cap-ex,” says Greg Sharenow, a portfolio manager at Pacific Investment Management Company (Pimco) and former senior energy economist at Goldman Sachs (GS). “We’ll see a pause in new investments, but you probably won’t see shut-ins without real distress,” he says.

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